News

Coinbase Expands Digital Asset Lending Services

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Andrew R. Michaud

• September 07, 2023

Coinbase Global, the renowned cryptocurrency exchange, is making strides in the digital asset lending space, specifically catering to its largest clients. This move comes after a period of instability in the crypto market that lasted over a year, leaving a void in this particular segment of the industry.

Lending Program for Institutional Investors

Coinbase is set to launch a lending program through its Prime service, exclusively designed for institutional investors. In a recent filing, the company revealed that its clients had already deployed an impressive $57 million on the platform. According to a Coinbase spokesperson, institutions can now lend their digital assets to Coinbase under standardized terms.

A Formal Shift in Services

While Coinbase has previously offered lending services to institutional clients, this latest move represents a more formal shift towards providing standardized offerings reminiscent of prime brokerages in traditional finance.

Enhanced Benefits for Clients

Through this lending program, clients now have the option to loan their digital assets to Coinbase and, in return, receive collateral that surpasses the value of the loan. Furthermore, lenders are given the freedom to select the specific type of collateral they wish to receive, such as Bitcoin or the dollar-pegged USDC stablecoin. A trusted source familiar with the matter added that Coinbase can then offer secure loans to its institutional clients.

Expanding into an Untapped Space

Coinbase's expansion into the digital asset lending space comes at a time when the market is reeling from past turbulence. It is worth noting that prominent lenders like Genesis, BlockFi, and Celsius have all filed for bankruptcy, leaving a void that Coinbase is now ready to fill. Interestingly, Coinbase has reported zero credit losses on loans to customers thus far in 2022.

Overall, this move signifies Coinbase's commitment to diversifying its services and solidifying its position within the crypto economy. With its expansion into digital asset lending for institutional investors, Coinbase aims to provide a much-needed service amidst a recovering market.

Crypto Lending and Regulatory Concerns

In September 2021, Coinbase faced pushback from regulators over its plans to launch a "Lend" platform for retail customers. The Securities and Exchange Commission (SEC) even threatened legal action against the company. Although Coinbase decided to focus on serving institutional investors with its new program, the SEC accused the platform of failing to separate its various business areas, such as the exchange and brokerage activities, as is customary in traditional finance. Coinbase, however, has vowed to challenge these allegations in court.

Despite the hurdles with regulators, Coinbase views the prime brokerage as a product free of conflicts of interest. A reliable source familiar with the matter confirmed this perspective.

While diversifying into the prime brokerage space could be a strategic move for Coinbase, the impact on revenues and stock remains uncertain. The company's core business still revolves around token trading, which has faced considerable challenges following the Bitcoin downturn last year. To gain investor confidence and drive a more bullish sentiment towards its stock, Coinbase needs to witness improvements in this key area. Additionally, with increasing regulatory risks on the horizon, even the introduction of a new prime brokerage service may not be enough to dispel caution in the market.